Schwarzenegger
Plan Terminated

California Gov. Arnold Schwarzenegger's deal to sell 11 office properties for $2.3 billion appears to have died in the last days of his administration.

A group of temporary justices assembled by California's Supreme Court late Tuesday denied the governor's request to allow the deal to go through.

Controversy surrounding the deal has heated up since October when the state announced it was selling the properties to a venture that includes Hines, the Texas real-estate firm, and Antarctica Capital Real Estate LLC, a private-equity firm. The cash-strapped state plans to lease the buildings back for 20 years and realize about $1.2 billion in proceeds after paying off bonds.

Last week, Gov. Schwarzenegger asked the state Supreme Court to allow the deal to go through and overrule a lower court that temporarily halted the sale. The legal dispute stems from a lawsuit seeking to stop the sale filed by a group that includes two former members of the Los Angeles State Building Authority alleging the deal would cost taxpayers billions of dollars to become tenants in buildings they already own.

California's Governor-Elect Jerry Brown will be sworn into office Jan. 3 and his spokesman says the deal will be reviewed in full.

—Maura Webber Sadovi

A Hotel Mogul

Finds Some Backing

Kentucky hotelier
Bill Yung III
has found a solution to one of his debt problems just weeks after relinquishing control of 14 hotels to a lender,
Blackstone Group
LP.

Mr. Yung's Columbia Sussex Corp. has lined up loans from
Barry Sternlicht's
Starwood Property Trust totaling $206 million to replace debt that came due last July, the companies announced Tuesday. The deal means that 10 hotels pledged as collateral for those loans will remain with Columbia Sussex for another several years.

The loans from Starwood Property include $192 million in a mortgage and mezzanine loan at an 8% interest rate. Those loans, maturing in January 2016, are tied to eight hotels. In addition, a $14 million, one-year bridge loan averaging a 12% interest rate is tied to two hotels.

Mr. Yung's Columbia Sussex has grappled with its $2 billion debt load for much of the past year as parts of it have come due. Columbia Sussex forfeited 14 hotels backed by more than $1 billion in debt to Blackstone recently after a plan to sell them foundered. Mr. Yung didn't return messages seeking comment this week. His closely held company still owns roughly 45 hotels.

—Kris Hudson

Big Deal in Buckhead

Atlanta's upscale Buckhead neighborhood, which has been struggling with a glut of brand-new office space, is finishing the year on an up-note.

Real-estate investment trust
Parkway Properties Inc.
said it is under contract to buy the office and retail portion of the 50-story tower at 3344 Peachtree Road for $167.3 million, or about $346 per square foot. That is one of the priciest office-building sales that Atlanta has seen in years.

The space is 93% leased.
Adam Allman,
an executive with the tower's developer, Regent Partners, cautioned the sale isn't a done deal but that the company thought it was the right time to sell given market demand for stable real-estate investments.

The deal could prove to be a milestone for Buckhead, which saw a slew of high-end office developments built just as demand for space tumbled. Now, developers report that tenants are slowly creeping back, although it could still take a long time for the market to stabilize. About 26%, or 3.8 million square feet, of Buckhead's class-A office space is vacant, according to CoStar Group Inc.

"I don't know that there's enough tenant activity in Buckhead to allow everyone to have this kind of a happy ending," says
Kris Miller,
president of Atlanta real-estate firm Ackerman & Co.